Yoshida in China: Beijing's U.S. investments and economic security

Chinese investment in U.S. companies was "hardly noticeable before, but now it is rising sharply," according to a report to Congress.

The sharp increase of Chinese investment here in recent years, however, is not entirely a one-way street. State governments, squeezed by the recession and reduced federal revenue sharing, are "vigorously trying to attract Chinese greenfield investments in the hope of creating jobs and jump-starting local economies," the report correctly notes.

Here’s another salient fact: Chinese investments are flowing here "by the availability of financially weak firms, some of which possess potentially useful technologies for China."

How do we measure the economic benefit of Chinese FDI in the U.S.? Unfortunately, the report describes it as "modest." Employment in Chinese-owned companies in the U.S. increased by 10,000 to 20,000 jobs during the past five years. Some may discount this total relative to overall U.S. employment, but it's nothing to sneeze at given the current U.S. job market.

The report credits Chinese FDI with helping to stabilize some financially troubled firms. Portfolio investments by sovereign wealth funds also have helped the U.S. economy by solidifying the financial system and providing liquidity in property markets.

The report also attempted to determine the regional impact of Chinese investment. Citing a unidentified source, the authors found that since 2007 that the Southeast and Southwest along with the Great Lakes and Far West regions have benefited the most. Industry sectors attracting the most investment included fossil fuels and chemicals, industrial machinery and IT. The financial sector also is a major recipient of Chinese FDI.

The Commission appears worried about the dominant roll of SOEs in U.S. investment decisions. SOEs reflect the demands of Beijing, while the government “behaves like an owner, providing overall direction to SOE investments, including encouragement on where to invest, in what industries and to what ends,” the report warned.

SOEs also have unfair advantages over private firms when competing to purchase U.S. assets. Massive financial support from the central government could “determine market outcomes for purchases of U.S. business,” the report noted.

As for national security concerns, the report goes so far as to characterize Chinese FDI in the U.S. as "a potential Trojan horse." I don’t subscribe to this view. Indeed, economic and energy security appear to be the long-term concerns. For example, the report described Chinese investments in three energy technologies. Eventually, the authors said, production based on the acquired technology was shifted to China.

Not sure I understand your last paragraph.
In a partnership, both sides have to see a continued benefit. From what you describe here, though, it sounds more like "we are continuing to sell off the farm."
Here's the quote:
"Indeed, economic and energy security appear to be the long-term concerns. For example, the report described Chinese investments in three energy technologies. Eventually, the authors said, production based on the acquired technology was shifted to China."
Of course this makes sense from China's point of view. But what is the long-term prospect for these US industries? IP now owned by the Chinese government?
Ultimately, naturally, the resolution will come as China's labor costs reach closer parity to our own. Either because theirs rise or because ours fall.

I remember back when Japan was buying a lot of industries in the US back around 1989 (including the Rockefeller Center!) and it created a lot of paranoia.
Then the Japanese economy collapsed about 7 years later, and they were forced to sell off a lot of their assets at a big loss (including the Rockefeller Center).

I also remember the Japan paranoia of the late 1980s along the "The Japan That Can Say 'No'". Japan was a bubble ready to burst. Today, China finds itself in a similar situation as the U.S. seeks to leverage its entrepreneurial advantages.

Hey, it's a buyer's market... I think China is being really smart, diversifying assets and buying while stakes are cheap.
I remember when I used to play the board game Monopoly with my sisters, and it used to drive me mad that my younger sister used to buy every single thing she landed on. It looked willy nilly. But lo and behold, she'd win almost every game thanks to that strategy.
You invest your way our of a crisis. You invest to win in the long run. These are two lessons the U.S. would do well to learn. China certainly seems to know the rules....

It isn't surprising that Beijing doesn't want to increase the yuan's value. China and the US are intimate financial partners. China owns about $1T in US govt securities (yes, $1 trillion). Increasing the value of the yuan decreases the value of those securities directly. There's an old saying: "If you owe the bank $50,000, the bank owns you. If you owe the bank $50,000,000, you own the bank."